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Artemide Auditing & Consulting AG

Executive Summary

Artemide Auditing & Consulting AG (Artemide AC) is in the process of being formed as an ongoing sole proprietorship owned and operated by Sandor Artemide AC. The company is a spinoff of Daten Riffwald-Ennetmoos AG. Between the owners of Daten Riffwald-Ennetmoos and Artemide AC there will be 25% cross-participation. This plan is written as a guide for continuing and managing the business under the new company, and will also serve as the basis for marketing proposals. The two objectives of Artemide AC are to generate a profit and to grow at a challenging and manageable rate.

The mission of Artemide AC is to provide fast and reliable services in auditing and consulting to small and medium businesses (SMB), individuals, and other organizations.

The keys to success for Artemide AC are: visibility to generate new business leads, networking with other professionals, responsiveness, and quality.

The initial primary service offered will be auditing, although specialized fields will be considered in future growth.

The overall objective is to focus the activities towards the specialized services (analyses, investigations, startups, etc.) and to become a leader in this niche in the Luzern area. The company projects growth to be ~10% of sales in the next three years.

The most important keys to success for Artemide AC are developing visibility to generate new business leads, strong concentration on relationships with clients, and a high level of quality in our services.

The cooperation between Daten Riffwald-Ennetmoos and Artemide AC is flexible–with the objective to change rapidly if the market demands.

The sole proprietorship company “Sandor Artemide dipl. Wirtschaftsprüfer” was founded on 8 March 1996. In the first 10-month period, the company generated sales of $50,000.

Artemide AC is established in a separate office from Daten Riffwald-Ennetmoos AG, in Luzern. Secretary and telephone response is assumed by Daten Riffwald-Ennetmoos.

There are four major classes of competition in the actual fiduciary business in Switzerland. These include individual proprietors and small fiduciary and accounting offices and medium fiduciary offices with between 6 and 25 employees, these offices are available for general financial and tax consulting. There are also large auditing and consulting companies. These companies have several hundred employees. They tend to operate more in the lucrative consulting business. Banks, Assurances and other financial consultants are also new competitors in this field. Banks are now active in start-up consulting, corporate finance, mergers and acquisitions, and others.

Technology is, of course, very important to the success of Artemide AC. It is imperative that the company stay up-to-date on technological developments and it will be important to devote a reasonable portion of each year’s revenues toward upgrading the equipment and software used in normal operations.

Artemide AC will adopt a focused market strategy. Logical segmentation breaks the market down into the following: Individuals, Investors, Small Businesses, Medium Businesses, Large Businesses, and Authorities and Public Organizations. For our further development, we consider Individual persons and Investors plus Small and Medium Businesses to be crucial.

For our business, we do not have main competitors. We have a lot of widely-sized competitors in a vast market of services.This market environment gives ample opportunity for Artemide AC to create and expand a niche in the chosen market fields. Finally, worth noting is the growth trend for the general market, estimated between 5% and 10%, annually.

There are three different major opportunities (needs) in the fiduciary business over the next years:

    • Bookkeeping and other services related to the operative financial management (payroll, cost-accounting, accounting for pension funds, etc.).

 

    • Consulting and special mandates such as financial planning, business evaluation, merger and acquisition valuation, special audits, etc.

 

  • Legal Auditing (incl. IAS and other standards) as an independent and responsible institution.

In addition, the company sees three primary market trends which seem to be most important in our business.

    • Rapid growth in the complexity of business that requires rapid adaptation in the strategy and structures of companies.

 

    • More litigation due to higher percentages of unsuccessful ventures.

 

  • The growth of outsourced financial consulting.

All of this provides continuing opportunities for a dynamic company such as Artemide AC.

We believe our business is in a grand change. The competitors must be generalists and specialists at the same time. For small and medium fiduciary businesses, a focus of one primary segment of business is necessary. For example, if the “core” business is accounting, the other fiduciary businesses like tax, auditing, consulting must be reduced to a general level. In the core business, the company must be current with the services, while having the capacity to innovate (like new accounting services related to the Internet).

Artemide AC’s competitive edge is in the well-established reputation of Sandor Artemide who has been in the consulting business for over a decade, and the company’s ability to focus in this niche market.

The company’s sales strategy will be based on building long-term customer relationships, which will result in repeat sales. The company estimates that revenues will be approximately $232,000 by Year 3, yielding profits. The company will manage its assets and create profits with no debt financing. It does not anticipate any cash flow problems.

Sandor Artemide, the majority owner of Artemide AC, will assume strategic management functions. Brigitte Artemide will be in charge of market research and customer support. Since no major increases in personnel are expected in the next three years, Mr. Artemide will retain his managerial functions throughout these years.

Auditing and consulting business plan, executive summary chart image

1.1 Mission

Artemide AC’s mission is simple and straightforward:

  • Purpose – Artemide AC exists to provide complete, reliable and high quality services to SMBs, individuals, lawyers, and authorities. Services must give solutions and results!
  • Vision – By providing innovative services, Artemide AC generates a name in Luzern and the surrounding area.

1.2 Keys to Success

The keys to success for Artemide AC are:

  • Developing visibility to generate new business leads.
  • Relationships with clients (developing loyal, respectful, and intensive contact with both clients and potential clients).
  • Marketing/strategy and networking with other professionals.
  • Collaboration with Daten Riffwald-Ennetmoos AG for generally fiduciary services and IT services.
  • Responsiveness to clients (fast response time for special problems).
  • Quality (especially in reporting information).
  • Excellence in fulfilling the promise.
  • Openness: languages and willpower for creating interregional and international contacts.

1.3 Objectives

The objectives of this business plan are:

  1. To provide a written guide for managing this business; a strategic framework for developing a comprehensive tactical marketing philosophy.
  2. This plan is not intended to obtain financing, it is purely for internal improvements.
  3. The scope of this plan is to provide detailed monthly projections for the current plan year, as well as yearly summaries for the following two years.

The objectives of Artemide Auditing & Consulting are:

  1. The overall objective is to focus the activities towards the specialized services (analyses, investigations, startups, etc.) and to become a leader in this niche in the Luzern area.
  2. Cash flow – To generate sufficient cash flow to finance future growth and development, and to provide the resources needed to achieve the other objectives of the company and its owners.
  3. Growth – To expand the business at a rate that is both challenging and manageable, serving the market with innovation and adaptability. (Growth projected at 10% of sales in the next three years.)

Company Summary

Artemide AC will be an ongoing company from the sole proprietorship company Sandor Artemide dipl. Wirtschaftsprüfer with the following characteristics:

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  • The goal will be to continue the activities on a larger personal and organizational basis, still with no debt financing.
  • Artemide AC will assume operations of one of the Daten Riffwald-Ennetmoos AG’s divisions.
  • Between the owners of Daten Riffwald-Ennetmoos and Artemide AC there will be a 25% cross-participation.
  • The cooperation between Daten Riffwald-Ennetmoos and Artemide AC is flexible–with the objective to change rapidly if the market demands.

2.1 Company History

The sole proprietorship company “Sandor Artemide dipl. Wirtschaftsprüfer” was founded 8 March 1996. In the first 10-month period, the company generated sales of $50,000.

In the time of general recession, between 1996 and 2000, with a concentrated basis work, the owner created and assured his independent existence. The name Artemide was made known, and he has established a good professional reputation in Luzern.

Before starting his own business, Sandor Artemide acquired extensive professional experience as listed below:

  • 5 years ATAG Graff & Altern in Geneva, Switzerland.
  • 3 years Ziegfeld in Bern, Switzerland.
  • 4 years KUGN in Bienne, Switzerland.
Auditing and consulting business plan, company summary chart image

Past Performance
2000 2001 2002
Sales $111,182 $146,505 $162,140
Gross Margin $111,182 $145,347 $138,977
Gross Margin % 100.00% 99.21% 85.71%
Operating Expenses $43,430 $46,325 $49,221
Collection Period (days) 27 17 19
Balance Sheet
2000 2001 2002
Current Assets
Cash $5,211 $22,583 $92,651
Accounts Receivable $8,107 $5,211 $11,581
Other Current Assets $579 $1,158 $1,158
Total Current Assets $13,897 $28,952 $105,390
Long-term Assets
Long-term Assets $5,211 $5,211 $6,948
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $5,211 $5,211 $6,948
Total Assets $19,108 $34,163 $112,338
Current Liabilities
Accounts Payable $9,256 $9,844 $11,581
Current Borrowing $4,053 $1,158 $2,895
Other Current Liabilities (interest free) $0 $0 $0
Total Current Liabilities $13,309 $11,002 $14,476
Long-term Liabilities $0 $0 $0
Total Liabilities $13,309 $11,002 $14,476
Paid-in Capital $5,000 $5,000 $5,000
Retained Earnings $799 $18,161 $92,862
Earnings $0 $0 $0
Total Capital $5,799 $23,161 $97,862
Total Capital and Liabilities $19,108 $34,163 $112,338
Other Inputs
Payment Days 45 45 45
Sales on Credit $111,182 $146,505 $162,140
Receivables Turnover 13.71 28.11 14.00

2.2 Company Ownership

Artemide Auditing & Consulting AG will be incorporated in the city of Luzern by Sandor Artemide, who will be the majority owner. Twenty-five percent of the company will be owned by Daten Riffwald-Ennetmoos AG, the parent company.

2.3 Company Locations and Facilities

Artemide AC is established in a separate office from Daten Riffwald-Ennetmoos AG, in Luzern. Secretary and telephone response is assumed by Daten Riffwald-Ennetmoos. In the same building, on the first level, is established ATO Geistesblitz (sale and consulting of SMB software sage-KHK).

The structure is well established and satisfies the needs of both Daten Riffwald-Ennetmoos and Artemide AC. Both companies intend to optimize the office location in the future.

Services

Artemide AC will be the number one company in the Luzern area for specialized and investigative services in the modern business environment. Artemide AC also offers both classic, auditing, and general consulting services.

  • Artemide AC will offer three main services – Auditing, Consulting, and Investigation.
  • There appear to be four main classes of competition, as indicated under section 3.2.
  • Fulfillment of services will be provided in the future by Sandor Artemide and other equally qualified professionals.
  • It’s important to be current with the classic and special business software.

Detailed descriptions of these points are found in the sections below.

3.1 Service Description

Artemide Auditing & Consulting AG offers three main services:

  1. Auditing – Financial data must be checked and confirmed, we consider this normal, as a service related to auditing. Most of these services are legal audits in the sense of Swiss company law. A Legal Audit is the most comprehensive assessment of the presentation of financial data. By contrast, a Review is generally prepared for the assurance of the management and as a minimum requirement of financial institutions for the propose of extending credit. Finally an Analysis is limited on the plausibility and the ratios. An Analysis is normally based on audited or reviewed financial statements.

    An essential part of all audit activities is understanding the business environment in which a company operates and to evaluate the risks of financial losses. In fact it’s necessary to check past financial statements, but the key for a modern audit is to have time to move from an accounting approach to a planning approach–from present to future.

  2. Consulting – Includes business planning, business evaluation, merger and acquisition, start-up planning, restructuring, and business-succession planning, etc.
  3. Investigation – Our auditing and business expertise provides us with the ability to perform analysis, specialized audits, and valuation of businesses in business disputes, fraud, or other cases of incertitude and disputes.

3.2 Competitive Comparison

There seems to be four major classes of competition in the actual fiduciary business in Switzerland:

  1. Individual proprietors and small fiduciary and accounting offices. The primary business of these competitors is accounting and tax compliance (for individuals and companies). This offices normally employ between 1 and 5 people. These offices deal in a large spectrum on a general level, but without specialization. These offices are often members of the STV.
  2. Medium fiduciary offices with between 6 and 25 or more employees. These offices are also dealing in a large and general spectrum. If there are several partners–with different formation and specialties–these offices are available for general financial and tax consulting. This offices are member of the STV or/and the TK.
  3. Large auditing and consulting companies. These companies have several hundred employees. They tend to operate more in the lucrative consulting business. Public companies are normally audited by these companies. Large companies are normally not interested in dealing with small and medium business. All large companies have an international network.
  4. Banks, Assurances and other Financial Consultants are new competitors. Financial services are “in.” Banks are active in start-up consulting, corporate finance, mergers and acquisitions, and others.

3.3 Fulfillment

The fulfillment of services was provided in the past by the owner himself. The ultimate delivery was the owner’s expertise and problem solving capability, coupled with an open mind and ease of communication. The end result is an established trust with complete customer confidence and satisfaction.

In the future, the clients must also accept the work of other qualified personnel–it is necessary to transfer and expand the established personal goodwill into company goodwill. This will only be possible with qualified and motivated employees.

3.4 Technology

Technology is, of course, very important to the success of Artemide Auditing & Cconsulting. It is imperative that the company stay up-to-date on the technological developments in the classic business software like MS-Office, etc. as well as in the special software and tools for auditing, financial planning, business planning, etc.

In addition, it will be important to devote a reasonable portion of each year’s revenues toward upgrading the equipment and software used by Artemide AC in its normal operations.

Market Analysis Summary

Artemide Auditing & Consulting AG will adopt a focused market strategy.

  • Logical segmentation breaks the market down into the following: Individuals, Investors, Small Businesses, Medium Businesses, Large Businesses, and Authorities and Public Organizations. Descriptions are provided below.
  • The largest and most logical target markets for Artemide AC at the present are small and medium businesses. In a new “Financial Industry” Individuals and Investors become an important market segment.
  • For our business, we do not have main competitors. We have a lot of widely-sized competitors in a vast market of services. This market environment gives ample opportunity for Artemide AC to create and expand a niche in the chosen market fields.
  • Finally, worth noting is the growth trend for the general market, estimated between 5% and 10%, annually.

4.1 Market Segmentation

The following chart and table reflect the estimated market segmentation and growth for this business.

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  • Individual persons and Investors
  • Small Businesses – Defined as businesses with 1 to 24 employees, this is the second largest and fastest growing segment in our region.
  • Medium Businesses – 25 to 499 employees.
  • Large Businesses – 500 or more employees.
  • Authorities and Public Organizations
Auditing and consulting business plan, market analysis summary chart image

Market Analysis
2003 2004 2005 2006 2007
Potential Customers Growth CAGR
Individuals and Investors 20% 3 4 5 6 7 23.59%
Small Businesses 10% 20 22 24 26 29 9.73%
Medium Businesses 10% 33 36 40 44 48 9.82%
Large Businesses 5% 34 36 38 40 42 5.42%
Authorities and Public Organisations 5% 10 11 12 13 14 8.78%
Total 8.78% 100 109 119 129 140 8.78%

4.2 Target Market Segment Strategy

For our further development, we consider the following market segments to be very important:

  • Individual persons and Investors.
  • Small and Medium Businesses.

Artemide AC will focus its marketing strategy primarily on these market segments.

4.2.1 Market Needs

There are three different major opportunities (needs) in the fiduciary business over the next years:

  1. Bookkeeping and other services related to the operative financial management (payroll, cost-accounting, accounting for pension funds, etc.).
  2. Consulting and special mandates.
    • Financial-Planning
    • Business-Planning
    • Business-Evaluation
    • Merger & Acquisition
    • Startup-Planning
    • Restructuring
    • Business Succession-Planning
    • Coaching in Financial-Managing
    • Recovery
    • Special Audits, Reviews
    • Analyses
    • Investigation, Forensic Services
    • Other
  3. Legal Auditing (incl. IAS and other standards) as an independent and responsible institution.

We think that the need for consulting and other specialized fields has a strong growth potential.

Three primary market trends seem to be most important in our business:

  • Trend 1- (most important) Rapid growth in complexity of business in an ever-changing market and competitive environment needs continuous and rapid adaptation in both strategy and structures of companies.
  • Trend 2- (moderately important) In the future there will be a percentage of unsuccessful ventures resulting in more litigation, which, in turn, will emphasize the need for specialized audits, investigation, restructuring, etc.
  • Trend 3- (least important) Predicted continued growth in consulting because companies will be unwilling to pay fixed costs of salaries, choosing instead to treat specialized financial knowledge and needs as variable costs from external sources.

Economically it is more expedient to acquire specialized services from a consulting firm that has its own specialized employees.

4.2.3 Market Growth

As noted in the previous section, several factors are predicted to continue well into the next decade, not the least of which we estimate the annual market growth rate between 5% and 10%.

4.3 Service Business Analysis

The fiduciary and consulting business for the local area is already well established, yet still allows ample opportunity for us. This is supported by the following points:

  • Already in existence are a large number of firms – we think that most of the small and medium firms are operating in a limited spectrum of traditional fiduciary services (accounting and tax) and they do not have enough knowledge and/or time for entering the field of specialized services  – so we have new participants like banks, assurances, lawyers, and others entering the market.
  • Customers in the fiduciary business tend to be loyal, relying on the same consultant for future needs once a relationship has been established – this fact requires establishing a good and intensive personal relationship with client. This, in the large, “big 6,” firms, is often not realizable because of staff turn over and inaccessibility of personnel.
  • The globalization of markets will increase the demands for expansion of new services related to our business.

We believe our business is in a in a period of grand change. The competitors must be generalists and specialists at the same time. For small and medium fiduciary businesses, a focus of one primary segment of business is necessary. For example, if the “core” business is accounting, the other fiduciary businesses like tax, auditing, consulting must be reduced to a general level. In the core business, the company must be current with the services, while having the capacity to innovate (like new accounting services related to the Internet).

For our business, we do not have main competitors: We have many competitors in diversified services. More important than the competitors, is the need to get established in the right market and to develop this market with a strong and flexible strategy.

4.3.1 Competition and Buying Patterns

Competition in the general field of business consulting in the Luzern area is quite intense. Although numerous established companies offer a variety of services to different customer segments, Artemide Auditing & Consulting AG considers competition in our focus market niche of small and medium businesses to be modest. Customers in this segment strongly rely on the consultant’s professional qualifications and the ability to come up with viable solutions in a time- and cost-effective manner.

Strategy and Implementation Summary

Artemide AC will offer auditing, consulting, and investigation services to small and medium businesses in the Luzern area. The company will focus on providing excellent customer service, and that will generate favorable client referrals and increase customer retention.

5.1 Competitive Edge

Artemide Auditing & Consulting’s competitive edge is in the well-established reputation of Sandor Artemide who has been in the consulting business for over a decade. Combining his professional expertise with the financial, marketing, and technical support of Daten Riffwald-Ennetmoos AG, the company is positioned to further entrench itself in the growing market of small and medium business consulting in the Luzern area.

5.2 Sales Strategy

The company’s sales strategy will be based on building long-term customer relationships, which will result in repeat sales. Customer service and ‘face time’ with clients will be aimed to maintain a high level of customer retention. The charts and table below outline the Sales Forecast for the next three years.

Auditing and consulting business plan, strategy and implementation summary chart image

Auditing and consulting business plan, strategy and implementation summary chart image

Sales Forecast
2003 2004 2005
Sales
Audit services $80,492 $96,590 $115,908
Consulting services $48,291 $57,949 $69,539
Investigation services $32,194 $38,633 $46,359
Total Sales $160,977 $193,172 $231,807
Direct Cost of Sales 2003 2004 2005
Audit services $12,077 $13,889 $15,972
Consulting services $7,243 $8,329 $9,579
Investigation services $6,438 $7,404 $8,514
Subtotal Direct Cost of Sales $25,758 $29,622 $34,065

Management Summary

Sandor Artemide, the majority owner of Artemide AC, will assume strategic management functions. Brigitte Artemide will be in charge of market research and customer support. No major increases in personnel are expected in the next three years.

6.1 Personnel Plan

The following table outlines the two-person management system of Artemide AC.

Personnel Plan
2003 2004 2005
Sandor Artemide $48,000 $51,000 $56,000
Brigitte Artemide $24,000 $26,000 $30,000
Total People 2 2 2
Total Payroll $72,000 $77,000 $86,000

Financial Plan

The following sections include the annual estimates for the standard set of financial tables. Detailed monthly pro-forma tables are included in the appendix.

7.1 Important Assumptions

This information is presented in the table below.

General Assumptions
2003 2004 2005
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 25.00% 25.00% 25.00%
Other 0 0 0

7.2 Key Financial Indicators

The Benchmark chart below uses index values to compare past and future financial indicators. The bars show relative change, not absolute values.

Auditing and consulting business plan, financial plan chart image

7.3 Break-even Analysis

With our average monthly fixed costs, Artemide will surpass break even consistently throughout the next year of operations.

Auditing and consulting business plan, financial plan chart image

Break-even Analysis
Monthly Revenue Break-even $9,744
Assumptions:
Average Percent Variable Cost 16%
Estimated Monthly Fixed Cost $8,185

7.4 Projected Profit and Loss

The projected profit and loss information is presented in the table and charts below.

Auditing and consulting business plan, financial plan chart image

Auditing and consulting business plan, financial plan chart image

Auditing and consulting business plan, financial plan chart image

Auditing and consulting business plan, financial plan chart image

Pro Forma Profit and Loss
2003 2004 2005
Sales $160,977 $193,172 $231,807
Direct Cost of Sales $25,758 $29,622 $34,065
Other $0 $0 $0
Total Cost of Sales $25,758 $29,622 $34,065
Gross Margin $135,219 $163,551 $197,742
Gross Margin % 84.00% 84.67% 85.30%
Expenses
Payroll $72,000 $77,000 $86,000
Sales and Marketing and Other Expenses $6,897 $9,500 $13,000
Depreciation $2,400 $2,500 $2,500
Leased Equipment (incl. office rental) $2,400 $2,500 $3,000
Utilities (incl. office furniture, etc.) $1,800 $2,000 $2,500
Insurance $1,200 $1,500 $2,000
Rent $0 $0 $0
Payroll Taxes $11,520 $12,320 $13,760
Other $0 $0 $0
Total Operating Expenses $98,217 $107,320 $122,760
Profit Before Interest and Taxes $37,003 $56,231 $74,982
EBITDA $39,403 $58,731 $77,482
Interest Expense $0 $0 $0
Taxes Incurred $9,251 $14,058 $18,745
Net Profit $27,752 $42,173 $56,236
Net Profit/Sales 17.24% 21.83% 24.26%

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7.5 Projected Cash Flow

The projected cash flow and cash balance information is presented in the chart and table below.

Auditing and consulting business plan, financial plan chart image

Pro Forma Cash Flow
2003 2004 2005
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $149,782 $188,617 $226,341
Subtotal Cash from Operations $149,782 $188,617 $226,341
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $149,782 $188,617 $226,341
Expenditures 2003 2004 2005
Expenditures from Operations
Cash Spending $72,000 $77,000 $86,000
Bill Payments $66,312 $69,717 $85,791
Subtotal Spent on Operations $138,312 $146,717 $171,791
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $2,895 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $24,000 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $165,207 $146,717 $171,791
Net Cash Flow ($15,425) $41,901 $54,550
Cash Balance $77,226 $119,126 $173,676

7.6 Projected Balance Sheet

The projected balance sheet information is presented in the table below.

Pro Forma Balance Sheet
2003 2004 2005
Assets
Current Assets
Cash $77,226 $119,126 $173,676
Accounts Receivable $22,776 $27,331 $32,797
Other Current Assets $1,158 $1,158 $1,158
Total Current Assets $101,160 $147,616 $207,632
Long-term Assets
Long-term Assets $30,948 $30,948 $30,948
Accumulated Depreciation $2,400 $4,900 $7,400
Total Long-term Assets $28,548 $26,048 $23,548
Total Assets $129,708 $173,664 $231,180
Liabilities and Capital 2003 2004 2005
Current Liabilities
Accounts Payable $4,094 $5,877 $7,156
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $4,094 $5,877 $7,156
Long-term Liabilities $0 $0 $0
Total Liabilities $4,094 $5,877 $7,156
Paid-in Capital $5,000 $5,000 $5,000
Retained Earnings $92,862 $120,614 $162,787
Earnings $27,752 $42,173 $56,236
Total Capital $125,614 $167,787 $224,023
Total Liabilities and Capital $129,708 $173,664 $231,180
Net Worth $125,614 $167,787 $224,023

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8721.01 – Auditing services, are shown for comparison.

Ratio Analysis
2003 2004 2005 Industry Profile
Sales Growth -0.72% 20.00% 20.00% 8.60%
Percent of Total Assets
Accounts Receivable 17.56% 15.74% 14.19% 24.40%
Other Current Assets 0.89% 0.67% 0.50% 46.70%
Total Current Assets 77.99% 85.00% 89.81% 74.90%
Long-term Assets 22.01% 15.00% 10.19% 25.10%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 3.16% 3.38% 3.10% 42.80%
Long-term Liabilities 0.00% 0.00% 0.00% 17.20%
Total Liabilities 3.16% 3.38% 3.10% 60.00%
Net Worth 96.84% 96.62% 96.90% 40.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 84.00% 84.67% 85.30% 0.00%
Selling, General & Administrative Expenses 66.89% 62.95% 61.14% 83.50%
Advertising Expenses 2.05% 2.07% 2.59% 1.20%
Profit Before Interest and Taxes 22.99% 29.11% 32.35% 2.60%
Main Ratios
Current 24.71 25.12 29.01 1.59
Quick 24.71 25.12 29.01 1.26
Total Debt to Total Assets 3.16% 3.38% 3.10% 60.00%
Pre-tax Return on Net Worth 29.46% 33.51% 33.47% 4.40%
Pre-tax Return on Assets 28.53% 32.38% 32.43% 10.90%
Additional Ratios 2003 2004 2005
Net Profit Margin 17.24% 21.83% 24.26% n.a
Return on Equity 22.09% 25.13% 25.10% n.a
Activity Ratios
Accounts Receivable Turnover 7.07 7.07 7.07 n.a
Collection Days 59 47 47 n.a
Accounts Payable Turnover 14.37 12.17 12.17 n.a
Payment Days 33 25 27 n.a
Total Asset Turnover 1.24 1.11 1.00 n.a
Debt Ratios
Debt to Net Worth 0.03 0.04 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $97,066 $141,739 $200,475 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.81 0.90 1.00 n.a
Current Debt/Total Assets 3% 3% 3% n.a
Acid Test 19.15 20.47 24.43 n.a
Sales/Net Worth 1.28 1.15 1.03 n.a
Dividend Payout 0.00 0.00 0.00 n.a

Appendix

Sales Forecast
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales
Audit services 0% $4,343 $5,791 $5,791 $5,791 $7,238 $9,844 $8,686 $9,844 $5,791 $5,791 $5,791 $5,791
Consulting services 0% $2,606 $3,474 $3,474 $3,474 $4,343 $5,906 $5,212 $5,906 $3,474 $3,474 $3,474 $3,474
Investigation services 0% $1,737 $2,316 $2,316 $2,316 $2,895 $3,938 $3,474 $3,938 $2,316 $2,316 $2,316 $2,316
Total Sales $8,686 $11,581 $11,581 $11,581 $14,476 $19,688 $17,372 $19,688 $11,581 $11,581 $11,581 $11,581
Direct Cost of Sales Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Audit services $651 $869 $869 $869 $1,086 $1,477 $1,303 $1,477 $869 $869 $869 $869
Consulting services $391 $521 $521 $521 $651 $886 $782 $886 $521 $521 $521 $521
Investigation services $347 $463 $463 $463 $579 $788 $695 $788 $463 $463 $463 $463
Subtotal Direct Cost of Sales $1,389 $1,853 $1,853 $1,853 $2,316 $3,151 $2,780 $3,151 $1,853 $1,853 $1,853 $1,853
Personnel Plan
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sandor Artemide 0% $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000
Brigitte Artemide 0% $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Total People 2 2 2 2 2 2 2 2 2 2 2 2
Total Payroll $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000

General Assumptions
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00% 25.00%
Other 0 0 0 0 0 0 0 0 0 0 0 0

Pro Forma Profit and Loss
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sales $8,686 $11,581 $11,581 $11,581 $14,476 $19,688 $17,372 $19,688 $11,581 $11,581 $11,581 $11,581
Direct Cost of Sales $1,389 $1,853 $1,853 $1,853 $2,316 $3,151 $2,780 $3,151 $1,853 $1,853 $1,853 $1,853
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Cost of Sales $1,389 $1,853 $1,853 $1,853 $2,316 $3,151 $2,780 $3,151 $1,853 $1,853 $1,853 $1,853
Gross Margin $7,297 $9,728 $9,728 $9,728 $12,160 $16,537 $14,592 $16,537 $9,728 $9,728 $9,728 $9,728
Gross Margin % 84.01% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00% 84.00%
Expenses
Payroll $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Sales and Marketing and Other Expenses $400 $590 $590 $590 $590 $599 $590 $590 $590 $590 $590 $590
Depreciation $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200
Leased Equipment (incl. office rental) $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200
Utilities (incl. office furniture, etc.) $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150
Insurance $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100
Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Payroll Taxes 16% $960 $960 $960 $960 $960 $960 $960 $960 $960 $960 $960 $960
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Operating Expenses $8,010 $8,200 $8,200 $8,200 $8,200 $8,209 $8,200 $8,200 $8,200 $8,200 $8,200 $8,200
Profit Before Interest and Taxes ($713) $1,528 $1,528 $1,528 $3,961 $8,329 $6,393 $8,338 $1,529 $1,528 $1,528 $1,528
EBITDA ($513) $1,728 $1,728 $1,728 $4,161 $8,529 $6,593 $8,538 $1,729 $1,728 $1,728 $1,728
Interest Expense $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Taxes Incurred ($178) $382 $382 $382 $990 $2,082 $1,598 $2,084 $382 $382 $382 $382
Net Profit ($535) $1,146 $1,146 $1,146 $2,970 $6,246 $4,794 $6,253 $1,146 $1,146 $1,146 $1,146
Net Profit/Sales -6.16% 9.90% 9.90% 9.90% 20.52% 31.73% 27.60% 31.76% 9.90% 9.90% 9.90% 9.90%

Pro Forma Cash Flow
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Cash Received
Cash from Operations
Cash Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash from Receivables $5,791 $6,080 $8,783 $11,581 $11,581 $11,678 $14,650 $19,611 $17,449 $19,418 $11,581 $11,581
Subtotal Cash from Operations $5,791 $6,080 $8,783 $11,581 $11,581 $11,678 $14,650 $19,611 $17,449 $19,418 $11,581 $11,581
Additional Cash Received
Sales Tax, VAT, HST/GST Received 0.00% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
New Investment Received $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Received $5,791 $6,080 $8,783 $11,581 $11,581 $11,678 $14,650 $19,611 $17,449 $19,418 $11,581 $11,581
Expenditures Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Expenditures from Operations
Cash Spending $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000
Bill Payments $11,682 $3,061 $4,235 $4,235 $4,271 $5,370 $7,213 $6,406 $7,135 $4,235 $4,235 $4,235
Subtotal Spent on Operations $17,682 $9,061 $10,235 $10,235 $10,271 $11,370 $13,213 $12,406 $13,135 $10,235 $10,235 $10,235
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $2,895 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Purchase Long-term Assets $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Dividends $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Cash Spent $22,577 $11,061 $12,235 $12,235 $12,271 $13,370 $15,213 $14,406 $15,135 $12,235 $12,235 $12,235
Net Cash Flow ($16,786) ($4,981) ($3,453) ($654) ($690) ($1,693) ($563) $5,205 $2,314 $7,183 ($654) ($654)
Cash Balance $75,865 $70,884 $67,431 $66,777 $66,087 $64,395 $63,832 $69,036 $71,351 $78,534 $77,880 $77,226
Pro Forma Balance Sheet
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Assets Starting Balances
Current Assets
Cash $92,651 $75,865 $70,884 $67,431 $66,777 $66,087 $64,395 $63,832 $69,036 $71,351 $78,534 $77,880 $77,226
Accounts Receivable $11,581 $14,477 $19,977 $22,776 $22,776 $25,671 $33,681 $36,404 $36,481 $30,613 $22,776 $22,776 $22,776
Other Current Assets $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158 $1,158
Total Current Assets $105,390 $91,499 $92,019 $91,365 $90,711 $92,916 $99,234 $101,393 $106,675 $103,121 $102,468 $101,814 $101,160
Long-term Assets
Long-term Assets $6,948 $8,948 $10,948 $12,948 $14,948 $16,948 $18,948 $20,948 $22,948 $24,948 $26,948 $28,948 $30,948
Accumulated Depreciation $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400
Total Long-term Assets $6,948 $8,748 $10,548 $12,348 $14,148 $15,948 $17,748 $19,548 $21,348 $23,148 $24,948 $26,748 $28,548
Total Assets $112,338 $100,247 $102,567 $103,713 $104,859 $108,864 $116,982 $120,941 $128,023 $126,269 $127,416 $128,562 $129,708
Liabilities and Capital Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Current Liabilities
Accounts Payable $11,581 $2,920 $4,094 $4,094 $4,094 $5,129 $7,000 $6,165 $6,994 $4,093 $4,094 $4,094 $4,094
Current Borrowing $2,895 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current Liabilities $14,476 $2,920 $4,094 $4,094 $4,094 $5,129 $7,000 $6,165 $6,994 $4,093 $4,094 $4,094 $4,094
Long-term Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Liabilities $14,476 $2,920 $4,094 $4,094 $4,094 $5,129 $7,000 $6,165 $6,994 $4,093 $4,094 $4,094 $4,094
Paid-in Capital $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000 $5,000
Retained Earnings $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862 $92,862
Earnings $0 ($535) $611 $1,757 $2,903 $5,874 $12,120 $16,914 $23,168 $24,314 $25,460 $26,606 $27,752
Total Capital $97,862 $97,327 $98,473 $99,619 $100,765 $103,736 $109,982 $114,776 $121,030 $122,176 $123,322 $124,468 $125,614
Total Liabilities and Capital $112,338 $100,247 $102,567 $103,713 $104,859 $108,864 $116,982 $120,941 $128,023 $126,269 $127,416 $128,562 $129,708
Net Worth $97,862 $97,327 $98,473 $99,619 $100,765 $103,736 $109,982 $114,776 $121,030 $122,176 $123,322 $124,468 $125,614